How does Subrogation Work in Insurance?| Guideline to How Subrogation Right arises

How does Subrogation Work in Insurance?

Definition of Subrogation

Subrogation is defined as the legal right that enables an insurance company to legally confront a third party who is responsible for damages or loss caused to the insured.

subrogation is an exercise for one’s own benefit, of rights or remedies possessed by another against third parties.

If the right or remedies have already been exercised, subrogation entitles one the proceed therefrom.

It is the exercise whereby an insurance company legally facilitates the compensation of the losses faced by the insured, which is not actually his/her fault.

They do this to ensure the payment from a third-party responsible for the damage faced by their client or customer.

Examples of what subrogation is all about

Godfrey and Paul were living in the same house built by Godfrey, and it happened that there was a severe fire outbreak that led to the total destruction of the whole building, and an engineering consultant has estimated the cost of putting the house back into order to be $500,000.

However, Godfrey’s house was insured by an insurance company which helped him to recover the estimated cost of rebuilding the house {$500,000}.

At the end of the day, an investigation was carried out that shows Paul as the one responsible for the fire incidents out of his careless use of cooking gas.

Godfrey’s insurers will protect his interest by recovering the amount of the claim from Paul, as he caused the loss. In such conditions, Godfrey’s insurance company can apply the legal principle of subrogation doctrine to recover its losses.

They achieve this by using Paul to recover their loss on the ground of representing the interest of Godfrey.

Another example where subrogation right arises is motor insurance. An insured under a motor comprehension policy has two avenues of recovering his loss if his car is carelessly damaged by another motorist; from his insurers and from the careless motorist.

If he claims under his motor policy, his insurers take over his rights against the third party. In this scenario, the insurers, thus, recoup any money paid under their policy.

How Subrogation Rights Arise

Subrogation right in insurance arises in any of the following ways.

a. By contract

b. With salvage

c. In tort

d. Under statute

By contract: A subrogation arising out of the contract may impose an obligation on a third party to make good any loss sustained by the insured, irrespective of any evidence of negligence.

The insurer is subrogated to any other contractual rights possessed by the insured which will reduce or wipe off a loss.

Subrogation arising out of salvage: These arise where the insured claim is settled on a total loss basis without taking into consideration the monetary value of the remaining insured property. For example, stranded ships which have considerable value as scrap metal

Subrogation arising out of tort: This arises as a result of a wrong breach of contract, for which the law requires compensation in damages.

It is, therefore a breach of duty that an individual owes to others generally. For example, negligence and nuisances. Negligence is the most frequent cause of subrogation rights arising in respect of insurance contracts.

This video will go a long way to explain what subrogation is all about

 

Two Cases that Confirmed Subrogation

{a} Casetellain V. Preston {1883}: In this case, it was stated “A person who wishes to recover for, and is paid by the insurers as for, a total loss cannot take with both hands.

If he has a means of diminishing the loss, the result of the use of this means belongs to the insurers.”

{b} Burnand V. Rodocanachi{1882}: In this case, Lord Blackburn said in respect of marine policy;
“If the indemnified has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes equity that the person who has already paid the full indemnity is entitled to be recouped by having that same amount back.

Conclusion

As already stated that subrogation helps someone who finds himself in such an accident or loss that is not actually his fault, by providing compensation to the insured party while applying a legal procedure to recover the loss from the person responsible for the loss.

However, the principle of subrogation is acquired after the insured has been indemnified. It, therefore shows that the principle is applied where indemnity is applied as well.

Subrogation right arises by contract, in tort, with salvage, and under the statute.